Bartercard released their IPO yesterday but the Prospectus (that I analysed yesterday) is at best a grossly misleading document and at worst is arguably fraudulent. I believe that their IPO should be suspended immediately until much missing information is supplied and the misleading information is corrected to accurately reflect the reality. These two strong statements reflect my very serious concerns covering many issues to do with their listing and a personal desire to see investors more informed and less susceptible to their inevitable pain or loss should they part with their readies when using this Prospectus. Bartercard is currently an inch away from landing in my Hall of Shame.
I shared yesterday how I found the core business offering wanting for many reasons and I finished with questions relating to their extra-ordinary claim to have secured an agreement from IRTA to peddle their wares exclusively for the next 15 years (5+5+5). In this series of posts about Barter, I focus on the integrity of the Bartercard Prospectus. Following this I will then dive more into the IRTA debacle and give commentary on what has happened, how and why with suggestions on the ways forward for the various parties.
I don’t have much direct inside information as Bartercard tries to keep it’s skeletons locked away, but from a plethora of sources going back quite a while I can say with a fair degree of certainty that something is NOT RIGHT with the Prospectus.
Despite the Directors’ upbeat presentation in their Prospectus, Bartercard is a company in trouble. Like many in the industry it sits, it has had serious retraction over the last few years (closure of many branches in its founding country). It has survived through adverse trading circumstances, ownership and management changes, restructures, a 1000:1 share dilution (that’s not a typo BTW – thousand to one share dilution), internal challenges, serious membership reductions (from 55,000 in its hey-day to some 20,000 currently), industry-wide challenges and challenging debt (both revealed and not mentioned in the Prospectus).
As just one example of the two stories, compare these two statements – the first are words provided to people who likely don’t know the full facts and the second batch (certainly a little more accurate) to those who a lot more savvy:
Bartercard has a long and consistent track record of strong cashflow generation . . .
Bartercard is profitable with established revenues from a large customer base exceeding 24,000 merchants . . .
The Bartercard Trade Exchange has been operating for 23 years and the BF Group has a history of profitability. . .
BPS Prospectus – July 2014
Currently the Company’s operations and assets are held in a most complex and costly structure involving several overseas companies with only two real operating units and its intellectual property based on software systems, manuals and logos more than a decade old . . .
If the transaction proceeds . . . the net result will be that the Company, for the first time in more than a decade, will be substantially debt free, and its various business operations placed in a listed company with a much broader business base and a far better chance of gaining success than that which exists currently.
Bartercard communication to shareholders – July 2014
This mispresentation of reality is clearly deliberate. I know that literally, to the letter, these statements are not in direct conflict with each other but Bartercard IS strapped for cash, DOES need to sort itself out and the IPO is clearly their means to do this, as well as to benefit personally I am sure!
Sure, any Prospectus is a sales blurb, but this one fails the basic standards that the New Zealand Securities Commission and their Australian counterpart requires when it contains factually incorrect, misleading information and omits critical information. Putting the other ommissions and exaggerations into this context makes for a sorry analysis of the float.
Status of the industry
The lead statement in their analysis of the industry is a nonsense.
There are over 2,000 Trade Exchanges globally transacting more than US$20 billion per year in goods and services.
First, as I said yesterday nobody actually knows how many there are. Hundreds have fallen by the wayside and many are tinpot operations and while I previously put my guestimate at 1,000, I was being generous. In fact it is probably a lot less than that!
IRTA estimates that the transaction value is growing at 15% per annum.
Unlike IRTA or Bartercard, I don’t have any axe to grind here. I estimate that the transaction value has been declining for years and is currently static or even reducing. If anyone offers to pay me to do it then I’ll conduct a full research exercise and get the exact figures and status of the industry if you want. Prove me wrong and I’ll apologise but until then my figures are accurate and Bartercard’s are not.
Status of Bartercard
This is my biggest concern in terms of the completeness of information provided.
I will leave detailed analysis to others here but the three key subjects of my concern relate to:
- the Directors’ own interests,
- the omission of a very large Trade deficit (the debt from the company that runs the exchange to the members) not on their balance sheet and
- bad debt within the currency – a trading system deficit.
In regards to the buyback of franchises, who are the beneficiaries of the buyback? Are they individually the shareholders that will receive the funds? What’s really happening inside here? Is this Peter paying Peter and Paul paying Paul in the guise of an IPO? Why are the investors in the dark? Is there an element of a pump and dump or self-interest in the guise of a restructure and an IPO sneaking in here?
Should the last two issues (the massive trade deficit and likely huge bad debts from the last 5 years of global turmoil) be included in the figures (as I believe they should be) I estimate that Bartercard would be assessed as very ‘broke’ (putting it crudely) and their currency devalued substantially.
The Bartercard Trade Dollar has a very high perceived value in the Alternative Currency space. Bartercard in the retail space (especially in Australasia) has protected its name very well, but underneath the surface the cost of doing this has been high. At some point, like with the 2008 global financial markets this will affect their business. Leaving off any mention of this deficit has major implications for assessments of profitability AND the value of their currency. It is my take that both the Bartercard brand and the Bartercard currency are overvalued – by a lot.
Bartercard’s problem is the same as any trade exchange operator that has used their own currency for their own purposes (and Bartercard has been using/abusing it for decades) and it is that they will have tax obligations the day that they have to pay it back (or even acknowledge it properly). Thus they are damned if they do and damned if they don’t. As far as I can see they appear to have chosen not to brought it into their accounts nor to mention it in the Prospectus. This is dishonest, and probably illegal when attempting an IPO.
Let me ask you this simple question by way of explanation:
If you knew that Bartercard had a ‘house account’ with their own trading/currency system in debt to the order of $100m, would this change your view of the current status of the company?
If you answer in the affirmative and are considering the Prospectus seriously, then you should probably seek information on the exact size and nature of this possible debt from those who know the answer. I know the asnwer and I’m neither a member, employee, shareholder or official of the company. I find it very hard to believe therefore, that everyone associated with this Prospectus cannot also know, or should know.
If you can answer in the affirmative and then say or do nothing then you are by your inactions supporting the deception and could be held morally responsible for any losses incurred by investors basing their decisions on information that contains serious deception.
Bartercard, as a publicly listed company you will not be able to legally hide your dirty linen in the closet. I am doing you a huge favour by breaking the story here. I recommend that you withdraw your IPO before it is suspended by the authorities; rejig your offering and have another go once you’re clean. If the second time around with all the facts on the table and it passes muster, then I will support it 100%. Until then, sorry . . . I will not cease passing comment on your deceptions.
The projections in the Prospectus are simply insanity.
First as I mentioned yesterday, they are based on incorrect business assumptions with many (very real) risk factors actually identified. It is my belief that their entry into the SAAS market will be virtually a total failure. Preselling an old technology under their strong brand to one Trade Exchange in India is NOT a doorway to a multi-million dollar business in a difficult business,
Secondly the basis for their projections is totally BEST-CASE-SCENARIO ONLY. They use full retail figures for their projections when the reality is that deals are done on membership entry fees and transaction fee rates vary from negligible to the full retail rate. Annecdotally I can confirm that Bartercard members pay different rates – for joining and for their transaction fees. Any one with basic accounting skills can divide their trade turnover by their various fees income and see that their projections should at the very least have a ‘discount-factor’ or be based on current reality. This is a basic error and I can only assume is deliberate. I used the words ‘a snowball’s chance’ of hitting their targets yesterday. That’s a solid analysis.
The greater issue however is that if these guys know full well that their projections are inflated and [let’s put it generously] unlikely to be achieved, why do they do it? Answer that question and you will need to know the real motives for risking their reputations and credibility. To me, theses guys are either up to something OR they are stupid. Time will tell no doubt.
Whoever investigated and signed off on this Prospectus needs their heads read. The simplest of due diligence will reveal the same information as I have – I’m no secret spy with inside information secured through dubious means. I simply ask questions, speak to many people who help me see both sides to an issue, think things through and write about it. Why are the professionals who are presumably paid healthily to do this not picking up on these things BEFORE the IPO is released?
This Prospectus is a sales blurb, lacking in credibility, missing key information and certainly lacks the integrity that is in keeping with the reputations of those involved and I haven’t even gone into may other things that are what I view to be porkies to different degrees.
Egg-on-face time . . . you’re in on it or you’ve been conned.
IRTA’s involvement and close association with Bartercard is another story which I will address separately but I will comment on the significance of the IRTA thing to the IPO briefly.
The use of IRTA’s name through endorsement is downright foolishness, even without the exclusive aspect to the endorsement.
- IRTA does not currently have a widely respected name in the industry. Until or if they get their act together and get that respect back, associating with them in a commercial sense is a bit like hugging a corpse. I would NOT be associating myself that closely at the moment if I were Bartercard UNLESS I was clearly trying to help others and giving back to the industry somehow.
- IRTA’s endorsement of the Bartercard software (through the Executive Director) in January 2014 is anaemic to say the least. One man has written a personal testimonial on IRTA’s letterhead. Nope! Grounds for a multimillion dollar IPO, I think not.
- To the discerning, the use of IRTA’s endorsement (mentioned many times and as a key validation of their systems) smells like desperation, even necessity. If Bartercard truly had the goods, they would not need IRTA’s endorsement.
But it gets worse . . . they trumped their own partner!
Bartercard claims in the Prospectus that in June 2014 IRTA signed an extraordinary agreement with them for exclusive promotion and endorsement of the Bartercard solution as the best in the industry – now AND into the future. Spilling this information into the public arena (i.e. in their Prospectus) without a sliver of a mention from IRTA is a highly provocative act. It was the height of arrogance if they thought that they could have got away with it and nobody noticing, let alone referring the matter back to IRTA somehow.
I have seen no corresponding announcement from IRTA, nor posting on the IRTA website, nor validation of these claims. To the contrary in fact where the answer to my question posed yesterday (on whether IRTA had lost its marbles or Bartercard was playing games) may lean more in the direction of the latter than the former. Naughty, naughty Bartercard if this turns out to be the case.
Putting such political dynamite into Bartercard’s IPO was naïve in the least. It will undoubtedly now be the source of serious tension between Bartercard and IRTA; it will be a major story and distraction from Bartercard’s business intent (to solicit funds and rebuild their business) and it will destroy their credibility in many corners especially if it is found that the Board of IRTA has not been fully informed of the deal, or has not actually ratified it. Can we see the agreement, please? Have your Auditors and IPO consultants all seen it and validated it? Ouch! What a faux pas.
This aspect of the Prospectus makes for very sorry reading. Shame Bartercard, shame.
I bought shares in Ozone Australia using Ozone Trade Dollars. BBX offered their shares with BBX Trade Dollars. Has Bartercard offered their members the chance to use their Trade Dollars to invest in the company? If they have, then why is this not mentioned in the Prospectus?
I am not a member of Bartercard, but I do have credits available to spend (more on that in the next post). If Bartercard Trade Dollars are available for the purchase of shares, then this would be an enormous selling opportunity. Buy into Bartercard using your own goods and services would be an amazingly strong message that Bartercard believed in its own currency, an instant injection of young healthy memberships with excellent cash-conversion opportunities AND a way to help their members – many of whom have credits in the system and struggle to find ways to spend them.
Not a mention in the Prospectus. Why?
I smell a rat, or two. The ultra-short timeframe (only one month) indicates to me that they probably already have a deal in place. It might not be hard to get the required numbers if they take Bartercard as a form of payment by offering to their members, thus one hurdle would be over. If they’ve already arranged a deal for the funds from ‘friendlies’ then they would be over the next hurdle. I’m wondering it they are hoping that they can get through, or won’t trigger an investigation and suspension, but to my (untrained) eye, I doubt that it will pass muster.
I’ve yet to speak to any of the principles (they all have a right-of-reply here if they so wish), but there’s something going on under the surface that makes this float suspect and I suspect there are hidden agendas. I would never call Bartercard an ethical company. I consider them aggressive, efficient and early thought-leaders in the industry but with serious opportunistic streak running through the organisation from top to tail, typical of many commission-based operations. There will be a few straight players in there I’m sure but what I consider a fiasco with the IRTA thing and a dodgy Prospectus really doesn’t engender a lot of trust with me.
The company is one with a long history of self-promotion and issuance of partial information. As a private company they can conduct themselves however they so choose in my mind but as a listed company their ethics are a lot more open to disclosure. The skeletons WILL come out because there are systems, organisations and people out there ready to pounce and assess their conduct with a very fine toothcomb. I don’t think the directors have truly grasped the significance of this when trying to move their company into the public space. Attempting to deceive is foolishness when just for one, a pesky little opinionated Samoan-based blogger is asking questions as they try to play in the corporate listed company space with things out there they don’t really want known.
It is my experience that in the long term it is far better to build a business on facts, openness and honesty. Bartercard appears to have a long way to go, judging by this Prospectus.
Floating will have benefits for sure but doing so on the basis of incorrect, misleading or missing information is for me immoral AND illegal.
The New Zealand and Australian authorities should be informed that there are missing components to the offer and the companies and people involved in the float should reassess their positions, their words, figures, endorsements and projections – preferably sooner before they apply to the ASX, rather than later. Should the transaction proceed and investors be disappointed with their investment, they will have invested in light of my advice here, given on only the second day following the opening of the Offer.
Bartercard should not list with the information contained within the current document the basis for securing investment monies.
Disclaimer: I’m not saying that Bartercard is an unworthy investment opportunity period, I have said that I won’t invest (unless they accept Bartercard Trade Dollars); that the planned business model is uncompelling . . . and today, that the company is knowingly misleading potential investors with a dodgy Prospectus.
* The subject of trade deficits is the elephant in the room in the Commercial barter industry and it is widely known that Bartercard has a very large trade deficit.
This post is the third post in a series about Barter. In my next post I discuss the issues surrounding IRTA, an industry association whose claimed exclusive support of the Bartercard platform/technology was the key driver to list Bartercard.
The Barter Series
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